I’m looking for experiences with reverse mortgages, either first- or second-hand. I know the basic concept, but is anyone interested in describing the good and the bad of them?
I’m considering a reverse mortgage on my homestead property. I have a mortgage loan that is about 30% of the appraised value, and want to pay this off as a minimum. Anything else (cash out or equity loan) is a bonus.
I have no relatives to leave the home to, so a bank is as good as any.
Thoughts? Experiences? Does it work? Is it a mistake? A godsend?
How old are you? One thing to keep in mind is that reverse mortgages are only available to people over the age of 62. It also must be your primary residence.
Here are some guides I’ve found for reverse mortgages. They appear to be from reputable sources, although the use of 6 & 8 % interest values as examples suggests one doc is not current:
I’ve got friends going thru the process right now, but I doubt their experience is typical. Just before closing, their company was bought by another and they had to re-sign all the paperwork on the new company’s forms - 170+ pages of them. She went thru page by page and discovered all sorts of errors - basic things like the year the house as built. If I knew what company it is, I’d share that, but alas…
What I’ve learned from her is in the case of reverse mortgages, like in any deal involving money, you have to look out for your own self-interests because no one else cares as much as you do. I don’t know if we’ll ever do the reverse-mortgage route ourselves. We have one daughter so she’ll get everything anyway, assuming we have anything of value left. Not having to dispose of our house might be a positive…
I’m also thinking about a reverse mortgage. I qualify, totally own the house (no mortgage), and have no heir (my partner has his own house next door).
But it should be pointed out that you still have to pay property taxes on the house. Some people get their reverse mortgage specifically for the purpose of paying their property tax each year.
And my understanding is that if you wind up going to a nursing home, you lose the house. Now, what happens if you don’t stay in the nursing home . . . you no longer have a home to come back to.
As I understand it, if you leave the home for a year or more, your loan becomes due. You can sell the property to pay it off. I wouldn’t call that “losing” the home any more than if you sell it now.
Yes, you still have to pay property taxes and keep the property in good working condition (although I doubt that they check up very often on that, nor will they break down your door to check your basement sump pump).
You can pay off the mortgage, or pay it down, as you wish. In fact, if you have other income, it might be a good idea, as with *no *payments, the interest owed is compounded (I think). I don’t know what might happen if the total owed exceeded the value of the property, but I hope there is some kind of cap.
And if you pay it down while you can still work, the amount you can borrow in the future should increase by the amount paid. So that’s a good idea if you can do it.
Here’s a 2 minute youtube video about reverse mortgages. Obviously, I can’t vouch for anything here, and I have no connection with the site, but it seems informative.
I believe the OP understands the technical parts of a reverse mortgage, and is looking for feedback from others who have gone through the process to see what snags are out there, and get overall feedback on the experience.
My sister, who is in the real estate business and who knows a lot about financing houses maintains that reverse mortgages are a serious mistake unless there are no alternatives. I personally cannot take sides as I don’t understand any part of her objections.
I’m in the real estate business, too, but I can’t figure out why it would be a serious mistake in some circumstances. Not for everyone, to be sure, but it appears to be the best alternative in some cases. I’m open to comments.
Charities have really shied away from reverse mortgages as part of their donation options (what with the housing market being what it currently is), but there are still some organizations that will do it. I bet your local community foundation or United Way will have some ideas on who in your area might be interested. I’d bet a house in Door Co. would be pretty attractive for a number of organizations.
Suppose you enter into a reverse mortgage agreement. Assuming you do so, at age 65, it is not unreasonable that you will live for another 20 years. In that time, your neighborhood can become a slum (look at sections of Detroit).
What happens if you home were to lose 50-80% of its value in the time of the mortgage?
Are you talking about a charity receiving a reverse-mortgaged home as a donation? Or a charity providing a reverse mortgage for a homeowner? I’m trying to wrap my mind around what you are talking about.
And Ralph124c, I don’t know the answer to your question, but I suspect the value at the time of the mortgage’s issuance would govern. What happens if a conventional mortgage is under water? Nothing, if the payments are timely. I imagine the mortgage issuer is aware of the risk and has worked it into the calculations; no investment is entirely risk-free.
I just asked my barber, where I get all my good financial advice, about a reverse mortgage. He did not approve.